Budget '97: Water and power companies to bear brunt of pounds 5.2bn bill for excess profits
Windfall Tax: LEVY ON UTILITIES
Thursday 03 July 1997
Gordon Brown confirmed the tax would hit not just the electricity, water and gas companies, but would also include British Telecom, the airports operator BAA and Railtrack.National Grid and British Energy were not included, a decision which surprised the Grid. The two electricity generators, National Power and PowerGen, also came off with lower bills than expected.
The tax was spread widely enough to head of the possibility of legal challenges from the companies. BT estimated last night it would pay around pounds 500m, lower than the pounds 1bn in recent speculation and indicated the chances of the group fighting the levy in court were "receding".
Sir Iain Vallance, BT chairman, said the Chancellor had taken into account BT's "special characteristics". He said: "We recognise that a figure in the order of pounds 500m spread over two years, whilst not a small sum, is considerably lower than earlier speculation might have suggested."
The biggest loser was British Gas, now split into BG and Centrica, which came off with a combined bill of pounds 704m, of which BG would pay pounds 513m. The bill came just a fortnight after the company lost its fight against savage price cuts from the industry regulator which will reduce its annual revenues by a further pounds 380m. A BG spokeswoman said: "This is a blow coming on top of a tough MMC settlement. We will need to consider the implications fully."
The formula chosen by Mr Brown was more complicated than expected by analysts. Designed to focus on excess profits, it compared the flotation value at privatisation with an average market value for the companies based on annual profits over up to four years after the sell-off.
The tax would be levied at a rate of 23 per cent on the difference between the two figures. The companies could pay in two equal installments, the first due on or before 1 December and the second a year later.
The Inland Revenue, which will assess and collect the levy, said the company values would be calculated by multiplying average profits with a price earnings ratio of 9, which approximated to the lowest average for the companies over the period. At flotation p/e ratios had varied from 11 for BT to 5 for water.
Simon Flowers, head of utility research at NatWest Markets, said: "It doesn't discriminate between those that were floated off cheaply or those companies which made increased profits through efficiency gains. From that point of view it's a bit unsatisfactory."
Mr Brown said the formula was designed to hit "excessive under-valuation and under-regulation" while no company would bear an undue burden. The water industry was also hit more heavily than predicted, paying pounds 1.65bn spread over the 10 privatised groups.
The electricity sector, including the regional companies, two Scottish groups and the generators, would pay pounds 2.1bn, with pounds 1.45bn raised from the rest, including BT.
To Conservative jeers, Mr Brown pledged the tax would be paid "without any impact on prices, or investment, or the quality of service or ... employment".
His claim was challenged by Anglian Water, which said its burden of around pounds 170m would hit future price cuts. "This is at the higher end of expectations. Our current borrowing is pounds 960m, so this adds another pounds 170m to that. The cost of that increased borrowing will be pounds 12m to pounds 15m a year. That restricts our ability to commit to discretionary investment and has an effect on the size and the timing of future price cuts."
The Chancellor coupled his announcement with the surprise abolition of the gas levy, a tax introduced in 1981 to cream off excess profits made from the original North Sea oil and gas boom. The move will cost pounds 400m over the next three years, reducing the windfall tax Welfare to Work fund to pounds 4.8bn and will reduce gas bills by about 2 per cent. The levy, which was 4p a therm, raised pounds 200m in 1996-97, of which Centrica, the demerged British Gas supply business, paid around pounds 150m. The move was seen as a concession by the Government which would cancel out most of Centrica's pounds 191m windfall tax liability, an interpretation confirmed by company sources. Independent gas companies complained that the group had been given a "deal" with Labour because of the huge take-or-pay burden on long-term gas contracts.
Another loser, according to analysts, was ScottishPower. The multi-utility group came off with a combined bill of pounds 317m. Manweb would pay pounds 97m, while Southern Water would have to find pounds 127m. Scottish Hydro-Electric breathed a sigh of relief with a bill of just pounds 45m.
By comparison BAA, which owns Heathrow and Gatwick Airports, escaped with a levy of between pounds 70m and pounds 100m.
Sir John Egan, chief executive, said: "While we regret our shareholders have to pay this bill, it is at least pleasing that the Chancellor appears to have produced a formula which ensures that BAA's bill, compared with other companies, reflects the strength of our case and the quality of our performance and our regulation since privatisation."
30 August 2014 12:00 AM
The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options
22 August 2014 10:30 PM
Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator
22 August 2014 10:30 PM
16 August 2014 12:00 AM
16 August 2014 12:00 AM
08 August 2014 11:30 PM
08 August 2014 11:30 PM
01 August 2014 07:30 PM
The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read
01 August 2014 07:30 PM
Five Questions: Changes to car tax discs
A student's guide to financial survival: You don't have to drown in debt at university
How to save money: UK is crashing down the European league table for putting money away
Two million first-time buyers are locked out
Mark Dampier: When even safety first is a risk, go for income and capital growth
- 1 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 2 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 3 Oil tanker with $100 million cargo goes missing off Texas coast
- 4 George Galloway left with severe bruising after attack in Notting Hill by man 'shouting about the Holocaust'
- 5 Medina: Saudis take a bulldozer to Islam's history
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- < Previous
- Next >
iJobs Money & Business
£50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony